Friday, 21 January 2011 10:04

Re: B of A - With Banks Being Forced To Admit The Inevitable Truth, How Long Will It Be Before Fundamentals Rule The Day Again?

As far back as 2009  (yes, over a year ago) I have been warning readers and subscribers of the (not so) hidden risks of putbacks, warranty and rep reserves, and the overly optimistic under reserving of the big commercial banks. I used JP Morgan as an example (see link list below), but made it clear this warning stood for several big banks(several of the big banks - As Earnings Season is Here, I Reiterate My Warning That Big Banks Will Pay for Optimism Driven Reduction of Reserves, As a matter of fact I said that the banks ' due to legal risk. This risk was significantly exacerbated the day after making that post, Less Than 24 Hours After My Warning Of Extensive Legal Risk In The Banking Industry, The Massachusetts Supreme Court Drops THE BOMB! wherein the Massachusetts Land Court Decision that invalidates foreclosures based on post sale assignments was up held by the Massachusetts Supreme Court. This is permanent, and precedent setting, absolutely justifying and vindicating my post from the day before and clearly demonstrates that The Robo-Signing Mess Is Just the Tip of the Iceberg, Mortgage Putbacks Will Be the Harbinger of the Collapse of Big Banks that Will Dwarf 2008!

I know many find this to be sensationalist, but they also found the bombastic posts of 2007 to be sensationalist as well, that is at least until 2008! We have mortgage situations where the actual BANKS are walking away from home, see Now, tell me how much the mortgages are worth behind abandoned houses - houses that were abandoned by both the homeowner and the bank? Although these are minority occurrences, I see them spreading away from the fringes and closer to the core as the economics of foreclosing on certain properties makes less and less sense in an increasing number of situations. All of this ranting and raving is simply to provide a background for the not so surprising development in the latest Bank of America quarterly earnings announcement. From Bloomberg: BofA Reports Loss on Costs Tied to Bad Loans, Mortgage Unit:

Bank of America Corp., the largest U.S. bank by assets, reported a $1.24 billion fourth-quarter loss as it boosted provisions tied to faulty loans and litigation and wrote down the value of its mortgage unit. The loss, equal to 16 cents a share, widened from $194 million a year earlier, according to a statement today from the Charlotte, North Carolina-based bank. Excluding a goodwill charge, adjusted net income was 4 cents a share, less than the average estimate of 21 cents by 24 analysts surveyed by Bloomberg.

Brian T. Moynihan, 51, who started as chief executive officer a year ago, booked $12.4 billion in 2010 impairments on credit-card and mortgage units purchased by predecessor Kenneth D. Lewis. The 2008 acquisition of Countrywide Financial Corp., then the largest U.S. mortgage originator, has saddled the bank with lawsuits and demands to repurchase bad loans.

“It’s a kitchen-sink quarter for their Countrywide issues,” said Jason Tyler, who helps oversee $5.5 billion at Chicago-based Ariel Investments LLC. “It’s typical for a new CEO to report a lot of big charges to lower the bar for themselves. You have a small window to do this and not get blamed for it.”

I remember the kitchen sink excuses that were made for Countrywide itself back in 2007. That's a pretty big kitchen!

The bank said earlier this month it agreed to pay Fannie Mae and Freddie Mac $2.8 billion to settle or preclude disputes over mortgages, triggering a $3 billion fourth-quarter provision. The provision was expanded to $4.1 billion, Bank of America said today, citing outstanding and future mortgage buyback claims. The quarter also included $1.5 billion in litigation expenses, the statement said.

... The mortgage unit posted a $4.97 billion quarterly loss, widening from a $994 million loss a year earlier, on the provision and goodwill charge. The provision for loan losses in that unit fell to $1.2 billion from $2.25 billion.

Fannie Mae and Freddie Mac, two of the biggest purchasers of home mortgages, have demanded banks buy back loans that were based on incorrect data about the home or borrower. The two government-controlled companies made more than $20 billion in buyback requests to Bank of America through year-end. The deals and additions to loss provisions “largely addressed” liabilities from Fannie and Freddie, Bank of America Chief Financial Officer Charles H. Noski said on Jan. 3.

The settlement with Fannie and Freddie apparently amounted to a back door bailout in and of itself, for it appears that BofA was able to settle for pennies on the dollar. The real threat is the private label stuff, though. Oh yeah, the US Central Bank has bought up much of that as well. Anyone care to hazard a guess who will foot the bill for that back door bailout?

Bank of America’s stock slid 11.4 percent in 2010, the second-worst performance in the 24-company KBW Bank Index; only People’s United Financial Inc. declined more. The lender had told investors to expect a $2 billion goodwill impairment on its mortgage operations in the fourth quarter, saying the unit’s value had declined because of litigation and foreclosure costs. Bank of America acquired Calabasas, California-based Countrywide in a stock swap originally valued at $4 billion.

Hmmm. A $2 billion goodwill charge following a $4 billion purchase from just two years back. Sounds like money well spent to me :-)

The bank still faces suits from insurers including including MBIA Inc. and Ambac Financial Group Inc. alleging that Countrywide fraudulently induced the firms to guarantee bonds composed of faulty mortgages. Bank of America said in a November filing that it was “not possible at this time to reasonably estimate future repurchase obligations” tied to litigation brought by the insurers.

Moynihan also must fend off demands from Pacific Investment Management Co., BlackRock Inc. and the Federal Reserve Bank of New York for putbacks tied to about $47 billion of bonds, people familiar with the matter have said. Bondholders agreed to delay legal action while holding talks with Bank of America, the lender said last month.

I've been warning on this one since 2007 - What is the Fallout of the Ambac Bankruptcy on the Investment Banking Industry? Robo-signing Conspiracy Theory Grows Some Balls. It's really just a big 3 card Monte game, really! See The truth that no seems to be admitting in the mainstream media is that the Shadow Inventory System in the US is Disguising the Equivalent of a Dozen Ambac Bankruptcies!

JPMorgan, the second-biggest U.S. bank by assets, said last week that fourth-quarter profit surged 47 percent to $4.83 billion as $2 billion in reserves flowed back to earnings on improving credit quality. Citigroup, the No. 3 bank, reported a $1.31 billion profit, compared with a $7.58 billion loss a year earlier. San Francisco-based Wells Fargo & Co., the fourth biggest bank by assets, said Jan. 19 that profit rose 21 percent to $3.41 billion.

Well, I have been suspect of these incongruencies from the beginning. Both of these banks swallowed very sick banks that had horrid underwriting procedures and tons of toxic assets. BofA comes clean, yet JPM just wants to look clean, I will soon illustrate for readers and subscribers how banks are booking "phantom earnings" off of the back of shadow inventory that will go a long way in explaining this "anomaly".

Last modified on Friday, 21 January 2011 10:04

9 comments

  • Comment Link Neida Dworkin Friday, 29 April 2011 18:17 posted by Neida Dworkin

    cost of installing solar panels

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  • Comment Link Reggie Middleton Monday, 24 January 2011 00:22 posted by Reggie Middleton

    Thanks. I am rather apolitical. That is not necessarily a good thing in many circles though.

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  • Comment Link fedwatcher Sunday, 23 January 2011 23:53 posted by fedwatcher

    Reggie,

    I would have replied earlier, but family matters kept my browsing to a minimum.

    As far as I can tell only you and Karl Denninger have been regularly bloging on these issues on a regular basis on general financial sites. Of course there are sites dedicated to these issues, but none as regularly read as yours and Karl's, yet many writers choose to ignore your warnings (based on meticulous research) and Karl's (based on less research but common sense), yet they read your blogs.

    We cannot transition out of this great credit crisis via ignorring law, yet many bloggers seem to assume that we can.

    If people want to know what the banking system is up to, yours is the one site that is a must read. Karl's site has a lot of good stuff but I cannot recomend it to everyone, especially those who believe in more vigorous gun control.

    Reading many sites with many views gives one the ability to sence the pulse of what views are out there. However, I detect no political bent at all on your site.

    BRAVO! REGGIE!

    Keep it up!

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  • Comment Link ugg enfants Friday, 21 January 2011 20:49 posted by ugg enfants

    J'ai bien regardé votre blog et a constaté que de faire le bien, pour soutenir un.ugg soldes,I like very much.

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  • Comment Link scott Friday, 21 January 2011 20:31 posted by scott

    Reggie,
    I understand your 3 card Monty position with the banks, insurance co's and the GSE's.
    It seems like the GSE's settled being the 800lb gorilla in the room that could have sent the
    banking industry back into collapse mode. Seems the Govt saddled the tax payer again because
    they knew the insurance companies were going to cost the banks 10 of billions. One Question tho,
    you state there could be many Ambacs? But wont the insurance companies possibly sue for fruad on
    top of all the put back money? Seems the insurance co's will be the big winners.....
    Thoughts?

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  • Comment Link John Ryskamp Friday, 21 January 2011 20:26 posted by John Ryskamp

    Remember when I said the central fraudclosure issue was, who has title? Well, take a look.

    Since real estate is a Ponzi scheme in this country, guess what the result is? NO ONE has title. Good luck with your economy, Amerika!!


    Home Buyers Are at Risk in Bad-Foreclosure Case at Massachusetts Top Court
    By Thom Weidlich - Jan 20, 2011 9:01 PM PT
    inShare.14More
    Business ExchangeBuzz up!DiggPrint Email . Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether thousands of U.S. foreclosures were properly documented during the housing collapse. Photographer: Jacob Kepler/Bloomberg
    Massachusetts’ highest court will consider whether a home buyer can rightfully own a property if the bank that sold it to him didn’t have the right to foreclose on the original owner.

    The state’s Supreme Judicial Court, which agreed last month to take the appeal, already ruled Jan. 7 that banks can’t foreclose on a house if they don’t own the mortgage. The lower- court decision now under review said the buyer of residential property in Haverhill, Massachusetts, never really owned it because U.S. Bancorp foreclosed before it got the mortgage.

    “It appears to be the next step in the conversation,” Paul R. Collier III, who represented the borrower in the earlier case, U.S. Bank v. Ibanez, said in a phone interview.

    Like the Ibanez case, the court’s decision may resonate with other states as they grapple with the rights of new homebuyers who may be hesitant to complete a purchase for fear of uncertain title, and with how such a trend may hobble the broader housing market.

    Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether thousands of U.S. foreclosures were properly documented during the housing collapse. Last year, completed foreclosures in Massachusetts rose 32 percent to 12,233 from 9,269 in 2009, according to Boston-based Warren Group, which tracks local real estate.

    Bundled Mortgages

    The latest case, Bevilacqua v. Rodriguez, could affect trusts that bundled mortgages and sold securities to investors. Questions about lending practices, including alleged overstatements of borrowers’ income and inflated appraisals, have pitted mortgage-bond investors against banks. Also, loan originators or trust sponsors may be forced to buy back mortgages wrongly transferred into loan pools.

    The Ibanez and Bevilacqua cases both originated before Massachusetts Land Court Judge Keith C. Long in Boston.

    Francis J. Bevilacqua III went to Long’s court to force the original owner to say whether he had a claim on the property in Haverhill, about 36 miles (58 kilometers) north of Boston. A city assessment website lists four condominiums at the location with a total value of $600,300.

    Bevilacqua asked Long whether he could try to find the original owner through newspaper notices, said his lawyer Jeffrey B. Loeb, of Rich May PC in Boston, in a phone interview.

    In August, Long ruled that Bevilacqua wasn’t the property’s owner and didn’t have standing to inquire about claims. U.S. Bancorp, which sold Bevilacqua the property in 2006, conducted an invalid foreclosure because it didn’t properly own the mortgage at the time, Long said.

    The mortgage transfer to U.S. Bancorp, which oversees the mortgage-backed trust containing the loan, happened after the foreclosure, Long said. All Bevilacqua had was a deed from an invalid foreclosure sale, the judge said.

    ‘Great Sympathy’

    “I have great sympathy for Mr. Bevilacqua’s situation -- he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title -- but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied,” Long wrote.

    The servicer of the mortgage-backed trust the loan was in would have handled the foreclosure and sale, not U.S. Bancorp, Teri Charest, a spokeswoman for the Minneapolis-based bank, said in an e-mail. U.S. Bancorp isn’t a party to the Bevilacqua case.

    Bevilacqua’s lawyers never found the original owner, Pablo Rodriguez. The city property-assessment site lists the four condos under different owners. Bevilacqua didn’t return a message seeking comment left with Loeb.

    ‘Broad Implications’

    The Supreme Judicial Court agreed to take the appeal directly, bypassing an intermediate panel. The court may do that when a case has “broad implications,” Kevin Costello, a lawyer at Roddy Klein & Ryan in Boston, said in a phone interview. Costello represents borrowers in a statewide class action accusing banks of conducting faulty foreclosures.

    Both Costello and Collier, the lawyer for Ibanez, said Bevilacqua is the first so-called third-party buyer case to come before the high court since the Ibanez decision.

    “The third-party buyers obviously have claims against the selling entity, the servicing entity and any title insurer and any attorney that was engaged,” Collier said.

    The court has tentatively set oral argument for April, according to Susan Mellen, the court clerk.

    “This ruling, in conjunction with Ibanez, may allow a wrongfully foreclosed-upon borrower to retrieve their property,” Glenn F. Russell Jr., a Fall River, Massachusetts- based lawyer for the other borrowers in the Ibanez case, said in an e-mail.

    Try-Title Statute

    In their appeal brief, Bevilacqua’s lawyers argue that Long confused requirements for the law used to prove one’s title to a property with those for the law their client sued under, the so- called try-title statute, through which one party seeks to force another to assert or waive a potential claim on the property.

    “The Land Court made this finding despite the existence of a recorded deed conveying the property to Bevilacqua,” they wrote. The lawyers said that even if the Ibanez ruling means Bevilacqua doesn’t have “legal title,” he has “record title” because of the deed.

    “Anyone conducting a title search would be led to believe that Bevilacqua is the record owner of the property,” they wrote. “Bevilacqua recognizes, without conceding, that Rodriguez may have a claim to the property.”

    Edward M. Bloom, president of the Real Estate Bar Association for Massachusetts, said the group may file a friend- of-the-court brief in the case. It may be possible under Massachusetts law that Bevilacqua could keep the property by having possession of it for three years, Bloom said.

    Legislative Solutions

    “Maybe the court will throw up its hands and say the legislature must come up with a solution,” said Bloom, a partner at Sherin & Lodgen LLP in Boston.

    The third-party issue has become a major one for title insurers in the state, said Richard D. Vetstein, a real-estate lawyer in Framingham, Massachusetts.

    “What’s going to happen to all these people?” Vetstein said. “The people who don’t have title insurance are really in big trouble.”

    The court may have left the issue of third-party buyers unaddressed in Ibanez anticipating a ruling in the Bevilacqua case, said Thomas Adams, a partner at New York law firm Paykin Krieg & Adams LLP.

    “That’s a big issue to leave outstanding,” said Adams, a former analyst at bond insurer Ambac Financial Group Inc. “If Judge Long’s decision holds, then that’s a big deal.”

    The case is Bevilacqua v. Rodriguez, 10880, Supreme Judicial Court of Massachusetts (Boston).

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  • Comment Link John Ryskamp Friday, 21 January 2011 15:20 posted by John Ryskamp

    By the way, why is Barry still President? Why hasn't Flatfoot Fitzy indicted him for kickbacks in the 2003 Health Facilities Planning Board legislation? After all, Barry's boss, Tony, has been spilling his guts for TWO YEARS? Why the delay, Fitzy? Or are you also working for GenMed?

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  • Comment Link Mark Hankins Friday, 21 January 2011 11:49 posted by Mark Hankins

    Y'know how in national elections its always "Florida, Florida, Florida"? Well fasten your seatbelts because banks are about to be big losers in the shadow inventory waiting game. Per a new ruling, HOAs can spur timely sales.

    http://www.poliakoffoncondohoaliving.com/2010/12/critically-important-florida-foreclosure-ruling-finally-gives-condos-and-hoas-weapon-against-banks/

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  • Comment Link Andrew Jackson Friday, 21 January 2011 10:24 posted by Andrew Jackson

    it wont matter Reggie, they are all simply going to get bailed out again and again. unless the people of this country get off their ass and act.

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